Monopolies and competitive firms pursuing profit maximization both choose to produce at the quantity where marginal revenue equals marginal cost but the optimal output level of the two will differ.

Question

Quizplus · Accepted Answer

Monopolies have market power to set a higher price than the competitive market price, which leads to a lower output level compared to that of competitive firms. Therefore, at the equilibrium where marginal revenue equals marginal cost, monopolies produce a lower quantity and charge a higher price than competitive firms.

Monopolies and Competitive Firms Pursuing Profit Maximization Both Choose to Produce